Legislative Memo

BILL:

S.1151 (O'Mara) / A.3611 (Morelle)

SUBJECT:

Real Property Tax Cap “Tax Base Growth Factor”

DATE:

May 8, 2015

The Business Council remains a strong supporter of the state’s real property tax cap, and we support its permanent extension in the 2015 legislative session.

In addition, we support adoption of S.1151 (O'Mara)/A.3611 (Morelle) which addresses an unintended side-effect of the original tax cap legislation.

Under current law, a local government’s or school district’s 2 percent cap on increased real property tax levies is adjusted for increased property values resulting from investment and physical improvements of taxable property, the “tax base growth factor.” Under this provision, the increased value of improved properties that are subject to a “payment in lieu of taxes,” or PILOT agreement, are excluded because that property is considered tax exempt.

This results in lower local revenues than if the PILOT did not exist, despite the positive impact of economic growth supported by the PILOT agreement.

As such, local government may be reluctant to use PILOT agreements as an economic development tool – an outcome that certainly was not an intended outcome of the cap legislation.

The state needs to fix this unintended, adverse impact on capital investment incentives. Under this bill, the economic growth fostered by PILOT agreements will be considered in the tax base growth factor, allowing for appropriate growth-related increase in their property tax cap. Importantly, as is the case under current law, the revenues from the PILOT agreement will be counted as tax payments for purpose of applying the cap.